The potential market for equity release in the UK is huge but is held back by poor reputation, after plans sold in the 1980s put borrowers into negative equity. These are the findings of a new report published by market analyst Datamonitor.
One of the main points of the report is that without solid regulation ‘ customers including financial advisers ‘ will be hard to attract.
Edward Ripley, Datamonitor financial services analyst and author of the report, said: ‘Equity release will come under the mortgage arm of the FSA in 2004, but no reversion schemes will be included. We think they should, and so do market providers, as it is the sort of area that needs regulatory clout. It would make the public more confident of the products and protect them better.’
In a reversion scheme, rather than taking out a loan against the property, the borrower sells a proportion to an equity release provider. The property deeds go to the company, on death or admission to long-term care, and the property is sold with proceeds split between the estate and the company. The report recommends the industry lobby the FSA to make sure the regulatory small print is put in place.
The report also claimed equity release products do not offer genuine value for money. This is partly due to the additional charges providers currently impose, including arrangement and valuation fees, early repayment charges and sale fees, which put many customers off.
There is also a perception the market is uncompetitively priced. Fixed interest rates for equity release products average 7%-8%, compared to 4%-5% in the standard mortgage market.
Ripley said: ‘There is room for improvement on some products, but there has been effort across the board. There is still a way to go to increase confidence and products could be made more simple to understand, as there are still lots of additional charges. However, organisations like Safe Home Income Plan (SHIP) have helped.’
Traditionally small advertising budgets also hold back the market. Three companies ‘ Norwich Union, NPI and GE Life ‘ accounted for 90% of the advertising spend of £12.5m in 2001.
Ripley added: ‘The market has been held back because, traditionally, the big companies have not had a presence.